Some thoughts from MIT Energy Conference and ARPA-E Summit
I’m not one to flog corporate green marketing stuff, but in this case I’ll make an exception. I can’t attest to the validity or accuracy of the presentation, but I’ve found the numbers being shared by Exelon, and their general attitude about green energy and stakeholder engagement, to be encouraging. You can see a good example here (note: link opens a large pdf). I’d be curious to hear what Joel Makower thinks about it…
I’m intrigued by two things in particular in this report: First, I’m pretty interested in their presentation of their carbon abatement cost curve (pages 3-4). I think they’ve done it in a funny way, and not necessarily the way I’d like to see (for example, they put some green power techs way down the curve but a closer look shows that net of incentives they should actually be much further up the curve). And as I noted to a colleague at the event, it’s a bit funny that utilities like Exelon spent years talking about how cheap nuclear power is, but now that the government is actually willing to throw money at it, they talk about how expensive nuclear is, and gimme gimme gimme. But with those kinds of caveats, I really like this kind of cost curve analysis and wish it was a requirement for all major utilities. And note how crucial energy efficiency, existing nuclear plant improvements (not new-build), new natgas plants, and wind power (net of incentives) are for this utility.
Secondly, on their website, I’m gratified to see a clear indication that they see environmental strategy as an area where they can actually create a competitive advantage, not just something to be managed to avoid downside risk. I can’t tell you if they truly believe that and act that way, but the message itself is very much in line with arguments we were making a decade and a half ago in the business sustainability movement. And it still holds true today.
John Rowe of Exelon spoke at the MIT Energy Conference, which is what drew my attention to the above literature. But Rowe’s speech was also pretty interesting, coming out strongly for pricing carbon and against renewable energy standards. Below are some quotes I jotted down (apologies for any scribble-induced inaccuracies):
“Every $10/ton in the price of carbon to us is an extra penny per kwh we’ll have to charge. It would cost us an additional 5-10 cents, from our current 11 cents per kwh average, if we were asked to do all new nukes, wind and solar [under a renewable energy standard, for example]. The public is willing to believe the [climate change] problem is real. Most people polled, however, didn’t like carbon tax or cap and trade because they thought it would cost them money. But they loved the renewable energy standard, because they thought it was free.”
“I support the renewable energy standard of Bingaman, but that’s because he recognizes the limits of how far we can go. You run real risks when setting energy policy by mercantilism, we’re not good at having Congress pick technologies. We need carbon cap and trade and a moderate level of support for specific policies. We need to harness the market. It’s better at correcting mistakes than government is. But the market needs to be constrained by policy as well.”
“The EPA has clear mandates to regulate carbon, mercury, coal ash, and new source performance. Coal-burning power plants have to navigate a labyrinth, it’s an endless series of hammer blows on existing coal fleets. The EPA is frustrated that they can’t synchronize these regulations, to shut down smaller less efficient plants and do more with newer cleaner coal plants, but they don’t have the authority to do so. It’s an expensive mess, which will reduce carbon, but neither effectively or efficiently.”
“We can’t make sense of nuclear with $5 natural gas. We need $8 gas and $25/ton carbon in the forecast for it to make sense… The key driver of change is the cost of natural gas. Gas you use to back up wind power became cheaper — that’s what made wind cost effective.”
“Some significant portion can be solved by efficiency and upgrading nuclear plants. After that, the next thing is natural gas, replacing inefficient gas or coal. It’s much cheaper than sexier things we would want to do. After that, wind, then new nuclear. Solar is still very expensive.”
“One advantage these new technologies have is that they can be implemented smaller scale. As innovation happens, it’s not as big of a problem for the utility. Nuclear plants take so long to build that the utility is really worried about picking a wrong technology. Nuclear’s problem is that it’s big and chunky.”
“Every month or so I call up my friend Rahm Emanuel and ask him if it’s time to push for a carbon tax yet. [He makes it clear it's not going to happen.] So it looks like cap and trade, if anything. In order to get to a bill that could work, you’ll need to put in a price cap, some kind of $10-20/ton collar, with a real escalator in place. Need to put in a renewable energy standard like Bingaman’s, with something similar for nuclear, and then you have a good start.”
……
It’s always fun to wander the exhibit halls and poster boards at tech-driven conferences like MITEC and ARPA-E. Here are some tech development efforts that caught my attention:
Low temperature solid oxide fuel cells — research at the University of Maryland, to bring SOFC operating temps to around 400C. High conductivity electrolytes, and novel electrode materials. …Although now that Bloom has solved all problems for SOFC forever, you have to wonder what the point is…
Geothermal electricity coupled with CO2 sequestration — being researched at the University of Minnesota. Essentially using CO2 as the working fluid. I’m not sure how restrictive the geological and geographic requirements would be, however…
Nano-dipole PV — research at the University of Toledo. This ARPA-E finalist is pursuing “fourth generation PV” in the form of “junctionless PV.” This nanoparticle approach is at the very early stages, but they will be testing it with existing thin-film PV materials as well as some new systems like liquid PV, and enhanced photoelectrochemical cells.
Thermoacoustic cooling technology — research at PARC looking to more than double the efficiency of traditional vapor compression systems for air conditioning.
Carbon labeling — the Carbon-Efficient Supply Chains Research Group at MIT is working on developing methodologies and labels to be able to help consumers better understand the carbon impact of products they buy. First off? A banana! Why? I don’t know… But it would be interesting to see some rating system that could be broadly applied at the retail level.
Microchannel reactors for Fischer-Tropsch — We’re seeing more efforts to capture syngas from distributed waste streams, but what to do with it when F-T based plants to generate liquid fuels are typically so big and expensive? New research into microchannel reactors might be able to bring economically-viable FT reactor scale down by 80-95%.
Higher power density flow batteries — While flow batteries remain too expensive for broad use as a grid-scale energy storage technology, United Technologies Research Center is working on technologies brought over from PEM fuel cells to bring flow battery power density up 4x or better, which would thus significantly reduce system cost.
“Oil & Gas” need a divorce
At ARPA-E, listening to Jim Woolsey talk about the possible important role of natural gas in any effort for both “energy independence” and climate change mitigation in the U.S.
It reminds me of a personal opinion I’ve been sharing with peers for a while now: That Oil & Gas need a divorce.
Historically, in the U.S. it’s been a single industry. “Oil&Gas”, practically all one word. You put a hole in the ground, and sometimes one comes out, sometimes the other comes out, so many large producers do a bit of both. You can see how a marriage of convenience, at the very least, would be natural for the group. Represented by the same industry servicers: Trade associations, lobbyists, PR efforts, organizations, research, etc.
But the universe of oil and gas producers is not monolithic. To use the parlance of Wall Street, there are “oily” producers and “gassy” producers. The “oily” ones have been larger and have largely driven the industry’s public positioning over the past few decades. Which works for the overall group when priorities are in alignment.
But energy independence and climate change are creating a serious divergence of interests. Oil is an imported commodity in large part, natural gas is domestic and seemingly abundant. Natural gas fired generation, and transportation, has a very different carbon emissions profile than coal, or oil, the two incumbent fuels in each category respectively.
The problem is that the “oily” part is still driving the overall “Oil&Gas” community’s positioning and perception. So in climate change legislation that’s been proposed, coal gets significant incentives to go “clean”, but natural gas fired generation gets relatively little support. There’s significant opportunity in the U.S. for natural gas fueled transportation, but other alternative fuels get more support. Switching home heating and appliances to natural gas from oil or even coal-fired electricity would make a significant emissions and efficiency impact, but the incentives have been underwhelming to date.
Longtime readers will know I’m an “all of the above” proponent — we need a robust mix of clean and cleaner energy sources if we’re to make any kind of impact on our energy challenges. Certainly, in my mind, natural gas has a very important role to play, as the most available already-scaled solution representing at least some improvement on the incumbent oil and coal fuels. The natural gas industry, in my opinion, actually stands to gain significantly from many of the climate change policy ideas being thrown around in DC. Some experts have described it as the best “bridge solution” to carry us through to an eventual low-carbon energy system. But right now, the natural gas industry seems to be getting tarred by the same brush being applied to the oil industry. And the “gassy” players seem to increasingly recognize that as a problem.
There are now some efforts out there to provide a voice specifically for the natural gas industry. I expect to see even more such shifts going forward.
“Shift happens”
I’ve stolen the title of this post from a very funny line delivered by Daniel Nocera (MIT, SunCatalytix) at the ARPA-E Summit in DC this morning.
Yes, I’m attending the first ARPA-E Summit, and I’m glad I did. It’s proving to be one of the best events of the year, in the cleantech sector. A who’s who list on stage and amongst attendees, a great mixing bowl for researchers and practitioners and investors, and some really impressively innovative ideas. Kudos to the organizers at the DOE and CTSI, among others.
The idea of ARPA-E, of course, is to try to get the energy landscape shift Nocera was referring to, to happen more quickly. To fund breakthrough, but practical innovation, that otherwise wouldn’t get funded. It hits directly at one of the capital gaps I’ve described before, at the very early stage, where VCs and angels and other private sector funders aren’t fully able to get involved, for reasons I laid out a while back. So it’s an important effort. In many ways, ARPA-E is just following in the footsteps of DARPA, another successful government program, and one that typically gets very strong support amongst legislators.
But while you can sense the optimism in the crowd here at the summit about this program and what it’s doing, ARPA-E is going to face quite a few challenges going forward.
1. Demonstrating economic impact: The work being sponsored by ARPA-E is necessarily forward-looking. It’s about investing in technology and commercialization efforts that are too far out or risky for the private sector to fund. In theory. But in this economic climate, the pressure will be on all programs to demonstrate economic impact, specifically jobs. These technology development efforts don’t lead to too many jobs being directly created. Perhaps the funding helps hire another engineer or two at each company, but realistically, it’s a bank shot to get to jobs growth — we innovate and commercialize something that then eventually creates jobs once it starts being rolled out. But here’s the crux of the challenge — many of the manufacturing jobs that get created via this innovation, when it happens, will be overseas. This is just the way the world works, I’m not criticizing ARPA-E for this. But my guess is others will, at some point — and specifically when an ARPA-E recipient outsources manufacturing and gets visibly “outed” for it.
2. Demonstrating additionality: “Additionality” means a very specific thing in the carbon world. It means proving that carbon emissions reductions wouldn’t have already happened under the status quo. ARPA-E is going to face a similar challenge. Among the ARPA-E grant recipients are several startups that were already pretty well-funded by VCs. It raises a critical question: Is the role of ARPA-E to fund projects that wouldn’t have been funded otherwise? Or is it simply to accelerate development of ideas, regardless of how or if they’ve been funded to date?
If ARPA-E is only supposed to fill the capital gap, then there’s a problem when it provides additional capital to a high-profile venture-backed startup. The private sector had already demonstrated its willingness to put money into the development effort, so what’s additive about ARPA-E’s role, and why wouldn’t they have better-deployed the money into something else with breakthrough impact potential but no venture funding to date?
On the other hand, if ARPA-E is only to fund efforts that haven’t been able to get venture funding yet, doesn’t that create a selection bias issue, where the agency is only funding ideas that the private sector has rejected, perhaps at times for good reason? And why shouldn’t the agency support really important ideas regardless of their funding status, because additional capital and visibility still helps?
Again, my point isn’t to criticize ARPA-E, which I believe has done a great job to date. But I do think the conundrum posed by these questions will be a challenge that the agency will continue to wrestle with going forward, and will likely face some scrutiny over at some point.
3. Demonstrating good selection judgment: This dovetails with the second point from above. ARPA-E has been flooded with requests and applications for funding. It will continue to be so, and many worthwhile efforts therefore won’t get selected, it’s impossible to back every deserving project. And so as the agency staffers choose one recipient over another, it raises the likelihood of the agency getting criticized for their choices — either as being wrong, or as showing favoritism. The agency, as far as I’ve seen, has worked hard to help avoid this, bringing in a significant number of outside reviewers as part of the process, and now also reportedly providing a lot more transparency to the process. This is very good.
But still, sooner or later one of these efforts will utterly and visibly fail. VCs are used to this, but elected officials are not. So sooner or later, competency of selection will be a debate that arises, whether justified or not.
And, sooner or later, someone is going to ask why a wealthy VCs’ portfolio company just got more “free money” from the government. This goes to that second point above, and has already been the subject of some external criticism.
Finally, sooner or later there will be an example of where the visibility inferred upon an ARPA-E grant recipient is perceived as having disadvantaged some other startups in the same subsector. Government intervention affecting the competitive landscape, in other words. There’s a legitimate counter-argument to be made that any legitimacy for one player in a subsector generally helps all players in the subsector, but still, I know from talking with contacts at the DOE that they’re already being bombarded with complaints from elected officials whose constituents were denied in their grant applications, etc.
I’m a big fan of the ARPA-E effort. And, knowing some of the people involved, and knowing some of the major process overhauls they’ve been going through to try to get it right, I think we’ll look back on the early days of ARPA-E as a really standout effort in terms of the level of execution of this versus other government programs in other policy areas. I just also know that nothing is ever executed flawlessly, and thus ARPA-E will likely eventually face some of the criticisms I’ve described above.
I hope that when that time comes, members of the cleantech research and investment communities will stand up and support it as the very valuable program it is.
Cap and Trade vs Carbon Tax – 6 Myths Busted
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“Micro-generation technologies are the wave of the future”
For some reason, I started looking over an experienced cleantech investor’s presentation on distributed generation today. It’s pretty fascinating. I’ll pull out a few notable quotes and points:
- “Micro-generation technologies are the wave of the future”
- “No technology breakthroughs are needed. It’s a manufacturing challenge.”
- “Micro-generators and micro-grids will ’strand’ T&D assets”
- “The costs are already in the range.”
- “Conventional systems: 100kw power master is $1500/mo full maintenance lease (~2 cents / kwh); $0.05-0.06 / kwh depending upon load factor at $4.00/mmbtu natural gas”
- “Wall Street is getting the message”
- And then this quote from an analyst at Morgan Stanley / Dean Witter: “…distributed or micro-generation… will have decimated the electricity distribution monopoly by the middle of the next decade.”
Did that last, pretty dated citation give away the punchline? The presentation I’m looking at has nothing to do with this week’s breathless news coverage of a certain natgas-fired distributed generation technology… It’s a presentation by Bob Shaw of Arete Corporation from the 1998 Aspen Energy Forum. (I apologize, I can’t provide a link to the full presentation, I’ve been holding onto a hard copy for about a decade now and can’t find it online.)
I just think this presentation provides a very welcome reminder of a few important facts cleantech investors always have to keep in mind:
1. To a certain extent, we’ve been here before.
In the late 1990s, there was a wave of energytech IPOs, many including distributed power generation technologies such as microturbines and fuel cells. There was an incredible hype cycle that, in conjunction with a generally bubbly tech stock market, allowed a lot of companies to IPO even with negative margins and relatively low revenues. With perhaps a couple of exceptions, many of those stocks later cratered. Some of the companies are still around, but have been through a lot of retrenchment.
I don’t want to feed too much negativity here, I’m personally more optimistic about the state of today’s energytech community in terms of economic value propositions, etc., than the maturation level of companies in the 1990s look in retrospect. I believe Bob wasn’t wrong, just visionary / early. But those who ignore history truly are doomed to repeat it, and flame-out IPOs don’t do any favors to anyone except potentially the early investors who got to exit quickly.
Let’s hope today’s cleantech investors remember the lessons from a decade ago.
2. Overhyping any company does the entire cleantech sector a disfavor.
“Hey, look at the attention that company’s getting from the media for making bold claims. We should do the same thing with OUR company! And so we need to move more quickly!” Overhype thus feeds a boom and bust cycle that encourages VCs to push their portfolio companies into high-risk, high-profile, high-valuation, high-cashburn trajectories that sometimes work out but often take otherwise promising companies and push them so far that they break.
It can also redirect government funding and corporate partnerships away from alternative, deserving solutions. Often solutions that exist elsewhere in the same investors’ portfolios…
And what’s more, when that single company’s overhype doesn’t pan out quickly enough, it turns opinion actively against support for the entire sector.
So overhyping a company may get everyone all excited, but it easily backfires, and when it blows up it hurts everyone in the sector, not just that one company and their investors.
PR is an important tool for VCs and for startups, but how do you decide when it goes too far? It’s an open question, one I don’t know the answer to, but it feels like cleantech investors and startups are pushing the boundaries of it right now.
3. At the end of the day, we are investing in technologies that produce commodities.
It’s not enough to just find the very best solid oxide fuel cell distributed generation system, of which there are actually many to choose from already, which some journalists appear to have forgotten this week. It’s not about the best SOFC technology, it’s about supplying kilowatt-hours (or joules of energy, or liters of clean water, etc.) at the right price and in the right way for each application. And there are often many different ways to supply these commodities.
Let’s take a 100kw SOFC-based natgas-fired powergen unit designed for distributed generation, to pick a random example. Well, that application’s been around for a while, actually, it’s the microturbine I mentioned above. And the application is also supplied by distributed solar. And small wind. And diesel gensets. And, unless you’re truly off the grid for some reason, yes it also competes with centralized grid-supplied power production. Not to mention negawatts in the forms of demand response and energy efficiency retrofits. Any given technology solution for this application is going to have to compete with ALL of these other alternatives, not just within their own category.
So in that light, take a look at this analysis by Lux Research, and then take a look at the specs for microturbines on this page. Looks to me like the new-new thing everyone is all excited about this week is happily about twice as efficient as the status quo natgas microturbine tech (at least when CHP isn’t an option, whereupon the efficiencies would be much more comparable), but also costs about 10x as much in upfront costs. If this comparison is correct, that’s great progress, but hardly a panacea. It’s not a miracle, it’s not even the assured wave of the future, because there are plenty of other ways to supply kilowatt-hours where the costs are comparable and going down quickly.
Let’s celebrate progress as a very good thing in general. Thus, the progess getting so much attention right now is indeed encouraging. Especially since I am indeed a believer in the vision of natgas-fired distributed generation, including SOFCs, as an important part of the future solution.
But I’ve seen where the vision of a DG-driven electrical grid has already taken a lot longer than very smart investors once thought it would, and I’ve also seen where overhype can be pretty damaging to our sector. So please forgive a pretty jaded post on the hot topic du jour…
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“Utility Time”
I’ve heard many cleantech investors say some version of the following: “Don’t invest in any company that’s totally dependent upon utilities as its customers.”
The admonishment reflects a basic fact — utilities move slowly. Terribly slowly. They move in “utility time”, where purchasing decisions are made slowly, if at all.
I spoke with one entrepreneur lately who had been working with a utility to be included in a rebate system, and now looked to be locked out. When the entrepreneur spoke with a sympathetic exec at the utility, the answer was “oh, we know you should be included, but that’s okay, you can just re-apply in six months.”
Six months is an eternity to a startup. That delay could be deadly.
When I talk with entrepreneurs who are looking to work with utilities as a customer or as a channel, I urge them to look at other models. I see entrepreneurs get very excited about being included in a beta installation — a few homes or a subdivision. The entrepreneur is often viewing this as a two-step process: If we prove ourselves out in the beta, then we get a big rollout opportunity. But what they don’t know is that the beta will be done on Utility Time, and thus it’ll be a couple of years before it is deemed a success or not. And even then, the response might be “Great, we’d now like to include you in a slightly larger trial project.”
The cleantech startup landscape is littered with the carcasses of cleantech startups who had been successful at landing utility betas… and then ran out of cash while waiting for the promised large-scale rollout.
Thus, many cleantech investors learn to avoid investing in startups that are directly dependent upon utilities for success. But insidiously, the government dollars flowing in the sector are having the effect of EXPANDING the influence of utilities upon startups. These dollars often go into rebate programs and demonstration projects, which are basically expanding Utility Time to cover even more of the sector.
If a rebate program or a demonstration project is given federal dollars, the utilities are going to be a critical decision-maker, and often THE critical decision-maker, in determining who gets to be included. And they make their decisions in Utility Time. And they don’t always make the right decisions to begin with.
There’s an institutional bias at utilities against emerging technologies, for example. In an earlier part of my career, I was a consultant for electric utilities, and worked closely with senior execs in that industry. Good folks, well-meaning folks, often very dedicated individuals. But totally disincented to put their careers on the line by trying anything new. Even if “new” wasn’t really that new. Cost savings are nice, but keeping the lights on and avoiding customer complaints were more important.
Let’s see how this might play out: The cleantech VC puts in an investment into a company that isn’t going to be selling to utilities. Let’s say it’s an energy efficiency technology sold to industrial customers. The economics are compelling. And then the local utilities are given significant rebates to encourage energy efficiency. Great, right? Not unless the VC-backed company is quickly included in the program. Otherwise, there’s the scenario where someone at the utility decides that alternative approaches are given rebates, but the new tech isn’t included in the rebate program. All of a sudden, the startups’ compelling economics don’t look so compelling when a lesser technology is granted rebates but the startup isn’t.
Yes, this is suboptimal — the utility sees less energy savings when lesser technologies are encouraged by selective handouts, and ratepayers therefore see higher costs. But that’s not an unusual scenario, it happens all the time.
Or take another scenario, where the startup is happily included in the rebate program — but the program isn’t actually started for several months while the utility coordinates with other utilities or perhaps works through a regulatory approval process. Well, in that case, why would potential customers sign up for the startup’s products or services before the rebate program kicks in? And so the startup experiences months of delay, thanks to the “good news” of being included in the program.
Again, delays can be deadly for startups.
Cleantech investors need to be aware of these and other ways that utilities insinuate themselves into the day to day operations of cleantech startups.
And utility execs need to understand this dynamic, and need to engage cleantech investors and startups to make sure that these obstacles aren’t standing in the way of their corporate progress. Because at the end of the day, state public utility commissions are going to be asking “why did our ratepayers end up not seeing the energy savings they could have, and was it because of delays caused by utilities?” And “We tried, but we were too slow” isn’t going to be an acceptable answer.
Utility execs need to talk with cleantech investors often. Otherwise, the road to energy hell will be paved with good intentions.
Don’t read this post
Totally whimsical thought of no value this morning:
At what point will we start seeing a wave of cleantech startups named with the same kind of randomness as Web2.0 startups appear to be?
Mint, Foursquare, Meebo, Swivel, PopJam, StuffBuff, etc. These are the kinds of company names you see in just a cursory glance at TechCrunch, one of the websites chronicling the rise of Web2.0 startups. The names appear to have little to no actual meaning, they’re just intended to be different-sounding and memorable and have easy-to-find URLs.
Meanwhile in just the solar space alone, cleantech has so many company names that just confusingly run together. SolFocus, Solar Power Partners, Solar Century, Solar City, Soltage, SunEdison, GroSolar, Calisolar, Solaicx, Solyndra, NanoSolar, Sierra Solar, SoloPower, Solexant, etc. Every once in a while a name that’s a head-scratcher (MiaSole? Day4?), but typically names that are intended to be more descriptive than creative. And the advanced lighting space is no different. How many different ways can you use “LED” in a company name? Or what about ‘A123′? I mean, c’mon…
It’s already near-impossible for anyone outside of the cleantech VC echo chamber to tell all these companies apart by name. Pretty sure even most insiders get confused often, although none of us would ever admit it (okay, I admit it).
So when will we see a wave of cleantech startup names that are intended to be catchy and have a short URL, and have little to no relationship to the technology itself? Is it an indictment of, or to the credit of, the marketing skills of your average cleantech startup team? And what will the emergence of names like Brightboy and Flurby and SolFood and such in cleantech tell us about the mainstreaming of cleantech, when it happens? Will it be a sign that cleantech investing has truly jumped the shark?
Random questions on a snowy Tuesday. If you read this far, don’t say you weren’t warned.
A valuable reminder on green building materials
Like many of my cleantech investor colleagues, at one time or another I’ve ended up spending some significant time on opportunities in the green building materials space. Green building markets in the U.S. are expected to triple by 2013, LEED certification is becoming a de facto requirement in some sectors and regions, and since buildings are responsible for something like 39% of all energy consumption in the U.S. any materials that can impact that have a big potential economic opportunity.
I was having a conversation with an experienced realtor this weekend, and mentioned green buildings to her. “Oh, I worry about those,” was her response.
First of all, she worries about untested materials having some kind of unforeseen unhealthy effect, like releasing formaldehyde. She brought up asbestos type fears.
Secondly, she described how when she had bought a house some years back, it had some kind of advanced siding material (I’m not even sure if it had any green attributes at all). The material worked as advertised — it held the paint well, she never had to repaint the house, and she thought the siding did protect the house from any interior damage. But unfortunately, the material developed small (sounds like superficial) cracks, so she ended up replacing all of it.
But most importantly, to the realtor this all came down to impacts on price. Impacts on price from perceptions that may or may not have a real basis in fact (ie: the formaldehyde fears from above). And in the case of the house she bought with the new siding material, she described how she drove down the price of the home when negotiating with the seller, because “this stuff is horrible!” The advanced materials didn’t add to the home’s value, they detracted from it. Because of flaws that sound like they were more superficial than real.
I think VCs sometimes have a tendency to become convinced that early adopters of a new technology presage mass adoption in short order. Certainly in some high-end residential and commercial markets, new green building materials are seeing really good adoption even in a down market. And I do think the long-term market opportunity for green building technologies is strong.
But my conversation over the weekend was a good reminder that there are some serious challenges in getting the main body of the market comfortable with any new tech or materials, green or no. And that if there’s a chance it’ll negatively impact pricing, most developers won’t want to touch it.
VCs investing in green building techs and materials will therefore need to take special care to make sure they’re not just investing in something that will be simply a high-end niche product. That means not just validating the economic value proposition. And it means not just double-checking that there’s nothing unsafe about the materials. It means also working hard to evaluate the market’s perception of and openness to the product, to understand just how difficult it will be to introduce the new product to the channel. Even if it’s cheaper and works better and has a few early “wins”, it still may see very slow adoption.